TBY talks to Mohammad Safadi, Minister of Finance, on the 2012 budget, efforts to fund infrastructure development, and Lebanon as an investment destination.
BIOGRAPHYIn addition to serving as Minister of Finance, Mohammad Safadi is Chairman of Safadi Group Holding, which manages investments in property development, banking, tourism, and industry. He is also founder and President of the Safadi Foundation, a non-profit NGO dealing with social, medical, environmental, and educational issues. As a Member of Parliament he is Head of the Lebanese-German Parliamentary Friendship Committee and a member of the Economy Commission.
In terms of the 2012 budget, what steps is your Ministry planning to take to manage the deficit?
We are hoping to present our budget to the government in September 2011. There is a lot of work being done, as the last budget was in 2005. All the over-expenditure of that time period will be settled and approved by the Lebanese parliament. For the budget itself we want to make plain that we will improve the ratio of our indebtedness to GDP. We are looking to improve, and therefore we will be strict on our expenditures, although we will have a heavy demand for investment in the energy, water, and transport sectors. We then need the private sector to follow up on these investments. Additionally, we are hoping to pass a Public-Private Partnership (PPP) law that will open the way for investment in infrastructure.
What are your expectations for the PPP law?
We want to invest in making sure we have a cheap source of energy, which is gas. Furthermore, it is important for us that Lebanon gains a regular supply. Therefore, the government will follow through on any investment that is needed in that field. As such, the generation of electricity will interest the private sector, as it is much more generation-focused. The Lebanese government will maintain ownership of the transmission of electricity, and so the investment in transmission will mostly be from the Lebanese government side. For roads, I know it is difficult maybe at this point to start a toll system, but it is something that we have to look at. It is important for us to solve many of our traffic problems—there are only three main roads leading out of Beirut and this is putting pressure on us. The cabinet has also confirmed that we need to begin improving the utilization of rail, especially in order to connect the north with the south of the country. It will help alleviate a lot of the transport problems.
What steps should be taken to make sure economic growth is equitable throughout the country?
We have to integrate the remote areas more effectively into the capital Beirut by enhancing the communication and transportation infrastructure. In that regard, it is doubly important for us to develop the rail network. For example, being able to travel from Beirut to Tripoli in 45 minutes will be very important for Lebanese citizens. This will also open up Lebanon to investment as it will widen the scope for the placement of factories and so on.
Successive governments have divested from agriculture. Do you think this is an area in which investment would be beneficial?
Unfortunately, agriculture was neglected until everyone started talking about food security. However, roughly 10% to 15% of the population works in agriculture. Yet agriculture accounts for only 5% of our GDP. Today, we have a high rate of unemployment relative to other countries. If more opportunities for employment can be created in the field of agriculture then it will be welcomed. We are also interested in developing more food industries linked to agriculture. Lebanon has proved itself to be strong in the food industry, and our export markets in this area have been relatively lucrative. There have been mistakes in the past regarding quality, but since then tremendous work has been done to improve standards. We are now more confident that when we open an export market, we can continuously supply it with quality products and foodstuffs.
In your efforts to improve the debt-to-GDP ratio, how important is improving efficiencies on the revenue collection side?
Improving efficiencies on the revenue collection side is very important as all people are concerned with it, although the expenditure side has to be seen at the end. There is a lot of work that has been started recently and will be carried out in that field. Some of the laws were not being enforced properly. However, we have taken a decision to decisively enforce all laws in this respect.
Your administration has been known around the world to be business friendly. What steps are being taken to promote investment opportunities, and where do you think are the most fruitful opportunities in Lebanon right now?
Some years ago we established the Investment Development Authority of Lebanon (IDAL), and it is a one-stop shop for any foreign investor to get all the support and waivers needed for an investment. In that respect, IDAL is functioning to support foreign investors in the country and support the export of Lebanese products to other countries. Having said that, something I have instigated since becoming the Minister of Economy is improved coordination with international agencies that expedite foreign capital investment to countries like Lebanon. We are trying to encourage foreign investors to use the World Bank-related Multilateral Investment Guarantee Agency (MIGA) services or other agencies to give them peace of mind that their investment in Lebanon is safe. Foreign investors think of these issues and it is normal, but if you can insure capital through the World Bank, I think it creates a good feeling in foreign investors. We are trying to couple a lot of the investments in our infrastructure by including insurance, so that investors will feel more comfortable and secure. And also, by the same token, it gives a guarantee for Lebanese capital that is to be invested in other countries, especially in Africa. For us this is also good if you want to invest in other countries that are facing some difficulties.
How important is Lebanon's very robust financial system to you in terms of managing the deficit?
We have to be prudent in everything we do, and it is important that we meet our debt obligations. We have honored all of our debts throughout our history. We have an excellent track record, and we hope to maintain it. We have never failed on any payment. If we need to expand our economy, then yes we need to borrow, but we have to do that prudently. We can service our debt, and we will be fine. Most importantly, we want to make sure that our ratio of debt to GDP is always decreasing.
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Year In Review
The Strong Cedar
Lebanon is an oft-overlooked leading center for finance, tourism, and trade in the East Mediterranean region that managed to ride through the global financial crisis on the back of a resilient banking industry, surging tourism receipts, and a real estate sector that showed no sign of weakness. The country's GDP shifted into overdrive in 2009 and 2010, recording annualized growth figures of 9% and 7.5%, with nominal GDP estimated to come in at $42.57 billion—up 1.5%—for 2011, according to the IMF. Lebanon is well respected by those in the know for its laissez-faire trading traditions, strong banking sector, and pro-free market attitude that has allowed it to prosper under conditions that would represent a challenge to most.read article